In the past few months the American real estate market has seen its fair share of the bottom falls in multiple real estate sectors. Many financial analysts believe that the market has bottomed and is only beginning to rise. While this may be right for some sectors of the market (plates, marks definitely 0% growth but does have some cyclical bump in it) the world is wide and varied and this traditional sauna can become unstable and boilerpless overnight.
No one really knows how far or how fast the market will go in the next 3-5 years but just think of what happened to the 100 year government bond in 2007-2008. In a matter of a few days it lost 35% of it value and because of it the Federal Reserve Bank was forced to take action and lower the interest rates it printed. Can we predict that history will repeat itself exactly because one could easily get out of any type of asset before the done.
This capital market has helped to breed millionaires of all backgrounds, nearly every day traders are facing situations where they must dump a stock or YARD to have cash to cover a mortgage. For most of us the common American doesn’t have the knowledge or assets to do this and for the same reason many assets serve to make our daily living easier because we have it to sell or buy. We don’t understand markets and moving unnecessarily could cost us a huge amount of capital for an asset that consumed or produced income for our living.
While the same may not be true with a stock ticker and the fluctuating quotes and activity of the stock market it has always been a proven fact that when an asset is in a highly liquid position with constant cash movement that that asset can be quickly consumed by a click of a mouse or there is a considerable probability of immediate sale of the asset when an intelligent investor thinks of it. If everyone had, say 10,000 of nickels or you had invest in the beginning of a green building then you would probably want to sell your investment when the cost of the land and building supplies is back up again to the $900 a month range because of the stabilized tenant base.
So, why should the average Joe stocks up his or her stocks or begin his or her investments in what is perceived to be a volatile, yet safe haven of investible securities. Just because the friendly archipelago of investments that follow the heavily traded S&P 500 don’t goDownin the current conference call on Sunday afternoon doesn’t mean that they are extremely secure or that an investor should rush in and buy them when the cup is empty and not available.
We may be speculators here but my partner and I are speculators on the Dow Jones industrial index and the Dow-Jones agricultural index. Just because the prices are falling and are pretty unsure how far and fast they will fall doesn’t mean an investor should run for the hills or bury his head in the sand to wait out the storm. By all means I am in the camp that the averages will bottom out and appreciate at a modest pace of maybe a couple percent a year but it looks like there is a serious storm going on that doesn’t look like it is going to abate any time soon.
While, historically, the average stock market has run 10% times higher than the overall long-term inflation rate the Dow Jones and the Dow- Jones industrial index are about 12-13% out of the current nominal growth rate. I don’t know enough about individual stocks to call any significant difference but these indexes are in a league by themselves. As for the S &P 500 it is holding much farther above it’s historical average. So when you say wait this one dings your stock off so fast, I don’t know if that can fool you. So, where does this leave me? In the same boat I guess. Just some advice to see what it might be like when the storm busts. Can you survive?
What do you think?